How can Zimbabwe fully realize its mining potential?
By Lyman Mlambo and Earnest Rungano Chinyanga
What do we mean by ‘potential’ in the title? A broader understanding of the word goes beyond just growing the mining sector, to the broader footprint of the sector on other economic sectors and on the development of the country in general. Simply put the mining potential of the country is fully realized when the mining sector grows, when it catalyses the growth of other sectors (that is, diversification and industrialization of the economy) and when all this culminates in the broad-based development of the country in terms of equitable sharing of the benefits of growth in the current generation and across generations. Mining sector growth requires optimization of every stage of the whole mineral value chain right and the rest requires sound mineral resource governance practices.
Growing the Mining Industry: Optimising the Mineral Value Chain
Growth of the mining sector is only the first condition for the country to fully benefit from its mineral resource potential, but highly critical as it is antecedent to the rest. It requires investment in exploration, mine development, mining mineral processing and beneficiation. The government needs to facilitate exploration both at reconnaissance and at detailed target follow up level. Reconnaissance or grassroots exploration is exploration of large areas or regions in a country to get the indication of the general mineral potential of the area for purposes of guiding more micro-and detailed exploration. Exploration per se is crucial because mining cannot be optimally conducted blindly. The importance of development of a geological database which is fed by, apart from Government’s own exploration activities, timeous and detailed exploration returns by both exploration and mining companies cannot be overemphasized. Knowledge of geo-scientific information of a country is also important in government’s investment promotion drive, which should be complemented by administrative efficiency in the issuance of and monitoring of issued licences.
For mine development available incentives in Zimbabwe are quite significant and should be maintained. Most critical is full capital allowances for importation of exploration and mine development equipment. There is need to speed up approval of development plans including siting of works plans, as well as implement effective monitoring of development progress, both of locally owned projects, purely FDI projects and joint ventures. Monitoring Ministry’s inspectors and the relevant President’s Office officials to be capacitated, and adequate decentralization of the Ministry’s various departments for expeditious rendering of services. At the mining and processing levels, it is important for government to address issues related to capital constraints, high-cost structures, foreign exchange shortages (including the high forex surrender requirement currently at 40%), a sub-optimal fiscal regime, and an infrastructure deficit (most of these issues are highlighted in the Lyman Mlambo’s 2018 report on “Zimbabwe Draft Minerals Development Policy and Strategy” done for the Chamber of Mines of Zimbabwe, on which report their ensuing discussion on these issues is based). Mining is a highly capital-intensive business which demands billions of Dollars both in sustenance and necessary ramp up capital. There is need to address the local capital market which is not geared to support the long-term investment capital requirements of the sector. The currently operating mines are saddled with antiquated equipment.
The high-cost structure characterizing the mining and processing operations in Zimbabwe is linked to high electricity tariffs, the high cost of operational finance, high cost of both local and imported supplies (exacerbated by depreciation of the local currency), high labour costs, and fiscal and administrative charges/levies including royalties which are relatively higher than in other jurisdictions. Regarding the rest of the mining fiscal regime the word is “sub-optimal”, which situation is evidenced by the fact that Zimbabwe currently lies at the bottom of the Fraser Institute’s global ranking of countries in terms of their investment attractiveness. The multiplicity of Zimbabwe’s tax regime in terms of the number of collecting agencies, the legislative instruments and tax heads, has made compliance not only difficult, but also costly, compounding the already high-cost structure. These issues need to be addressed, with the cost structure needing lowering and tax regime streamlined. The infrastructure situation in the country is deplorable. Mining and related logistics are heavily infrastructure dependent. Zimbabwe should aim to have a state-of-the-art infrastructure that can support an industry dealing with some of the bulkiest commodities. The participation of state through the Minerals Marketing Corporation of Zimbabwe (MMCZ) and Fidelity Gold Refinery (FGR) in the marketing of minerals is in sync with practices in many other countries. For the FGR, it is critical that the current incentives on prices, royalties and taxes be maintained as they have produced positive results; however, FGR decentralise enough to curb smuggling. For all minerals, there is need for the Reserve Bank of Zimbabwe to review downwards the foreign exchange surrender level given that mining companies import most of their consumables and capital equipment. The MMCZ needs to do more on market research in order to create new markets and facilitate export revenue forecasts and national budgeting. Both MMCZ and FGR need to invest in local state-of-the-art mineral assay laboratories and equipment for quantity measure (for example, weigh bridges) in order to accurately account for exports. The agenda to formalize artisanal and small-scale miners in gold and coloured gemstones need to be progressed with greater urgency in order to increase formal national output and revenue
Mineral-Based Development: Resource Governance Question
The above section is about growth of the mining sector. Development speaks to mineral-based diversification of the economy, industrialization and sustainable development, including fair distribution of benefits of mineral exploitation among citizens in the current generation (intra-generational equity) and between the current and future generations (inter-generational equity). The country needs to speed up the development and formal adoption of the Minerals Development Policy and the various mineral-specific policies as well as the amendment of the Mines and Minerals Act. These ongoing reforms envisage progressive elements including transparency and accountability, computerized mining cadastre system, gender mainstreaming, improved health and safety practices, environmental accountability, participation of host communities in initial consultation as well as in employment and environmental oversight, etc.
It imperative for government to deliberately catalyse development of local linkages between the mining sector and its upstream and downstream sectors. These two sectors, while very critical in promoting local procurement, local content and value addition, they are highly-skill and capital-intensive. They also require elaborate public infrastructural support in the form of good roads, railways, air transport, water and communication. Government needs to intervene by providing infrastructure requirements (alone or in partnership arrangements) and providing incentives for upstream and downstream enterprises. Contract negotiation is another critical element in promoting local procurement and beneficiation as these can specifically be provided for in the agreements with investors, and then monitored to ensure that they are implemented. Considering linkages with other sectors, the government needs to emphasize exploitation of the so-called ‘development minerals’ (industrial minerals), which tend to be overlooked. These minerals have easy local linkages with other sectors like agriculture (limestone is used as agricultural lime, and phosphate is used in the manufacture of fertilizers), cement manufacturing (limestone is used as a raw material), road and dam construction (crushed rocks and sand are used), building construction (rocks, sand, cement from limestone, granite blocks, etc are used) and various minerals used in the chemical industry. The infrastructure development associated with the development and operation of large mines creates some kind of economic corridors which support other sectors including agriculture, forestry, horticulture, fishery, tourism, manufacturing, etc. Minerals naturally occur and are non-renewable, and hence belong to all citizens in the current and future generations. Government, through budgetary processes, needs to ensure that revenue from the mining sector addresses regional development disparities and also targets all interest groups for inclusive benefits. Part of the revenue should be reinvested for the benefit of future generations. This could be in renewable resource sectors, renewable energy facilities, long-term modern infrastructure and facilities, and in investment funds (on-shore or off-shore) that accumulate interest and compound to very large amounts over several years – this will be available for use by future generations.
Thus, for Zimbabwe to realize the full potential positive impact of mining, it needs to grow the sector by optimizing the value chain, and leverage on mining to develop the country through sound mineral resource governance based on transparency and accountability. This would be possible through PCS: (i) conditions should be created for the industry to be very Profitable (P); (ii) the policy, legal and regulatory framework should be Complete (C) (no gaps or vacuum); and (iii) the conditions of profitability and completeness above should be relatively Stable (S) over time to sustain the growth and development momentum
Lyman Mlambo is a Mineral Economics and Policy Consultant at LMS Mining Consultancy
Earnest Rungano Chinyanga is an Assistant Mineral Economist at LMS Mining Consultancy